Arbeitspapier

Incentive-Based Lending Capacity, Competition and Regulation in Banking

This paper studies moral hazard in banking due to delegated monitoring in an environment of aggregate risk and examines its implications for credit market equilibrium and regulation, in a model where banks are price competitors for loans and deposits. It provides a rationale for an incentive-based lending capacity positively linked to the bank's capital and profit margin, for an oligopolistic market structure wherever banks have market power, and for capital requirements. Social-welfare-maximizing capital requirements are lowered in recessions, are higher the more fragmented the banking sector, and are increased when anti-competitive measures are removed. In equilibrium banks earn excessive profits and credit may be rationed.

Language
Englisch

Bibliographic citation
Series: Quaderni - Working Paper DSE ; No. 397

Classification
Wirtschaft

Event
Geistige Schöpfung
(who)
Chiesa, Gabriella
Event
Veröffentlichung
(who)
Alma Mater Studiorum - Università di Bologna, Dipartimento di Scienze Economiche (DSE)
(where)
Bologna
(when)
2001

DOI
doi:10.6092/unibo/amsacta/4904
Handle
Last update
10.03.2025, 11:43 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Chiesa, Gabriella
  • Alma Mater Studiorum - Università di Bologna, Dipartimento di Scienze Economiche (DSE)

Time of origin

  • 2001

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